BEERG: European Parliament Publishes Proposal on Forthcoming Supply Chain Law

October 23, 2020

The European Parliament’s Committee on Legal Affairs (LA) has issued a draft report on a supply chain due diligence law to be released by the European Commission in 2021, including a right of private action for aggrieved parties.

The LA report suggests that the proposed law should apply to all companies established in the EU or limited liability companies operating in the EU’s internal market, including non-EU headquartered companies.  There would be no exclusions.

Companies would have to identify and assess risks in terms of human rights, the environment, and governance, and publish a due diligence strategy.  Such a strategy would have to be developed in consultation with relevant stakeholders, such as trade unions and local communities impacted by company operations.  Supply chain partners would be bound by contractual clauses to undertake appropriate due diligence work also.  Across the supply chains, complaints procedures would need to be put in place.

The draft stipulates that the EU Commission would be responsible for publishing non-binding guidelines to enable companies to fulfill their due diligence duties under the directive in the best way.  However, Member States would be required to put supervisory procedures in place and the supervising authorities would have the power to make orders against companies, up to and including the suspension of operations.  Fines could also be levied.

Non-government parties who believed they had been harmed by company policies would have the right to sue for redress and would have options over which jurisdiction in which to bring such actions.

Looking ahead:  The legislation the Commission proposes is likely to be highly contentious and much debated.  It will need careful study by the employer community and constructive engagement with the legislators lest businesses find themselves subject to a law that is impossible to apply in practice.

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